Good morning, ladies and gentlemen, and welcome to the Siemens Healthineers 2018 4th Quarter Conference Call. As a reminder, this conference is being recorded. Before we begin, I would like to draw your attention to the Safe Harbor statement on Page 2 of the Siemens Healthineers presentation. This conference may include forward looking statements. These statements are based on the company's current expectations and certain assumptions and are therefore subject to certain risks and uncertainties.
At this time, I would like to turn the call over to your host today, Mr. Florian Vlossmann, Head of Investor Relations. Please go ahead, sir.
Good morning, ladies and gentlemen, and welcome to our Q4 conference call. The earnings release and Q4 presentation were released at 7 o'clock this morning, and you can find all documents on our IR website. Our CEO, Bernd Montag and CFO, Jochen Schmitz, are here with us today to review our Q4 and full year results. Bernd will start with the highlights and some strategic overviews, and Jochen will follow with more details on our financial performance. Afterwards, there will be enough time for Q and A session.
We would like to ask you to limit yourself to 2 questions each, so everybody has the chance to get a turn. And with that, I would like to hand over to Bernd. Okay. Thank you, Florian. Yes, good morning, everybody, and welcome to our Q4 earnings call.
Before diving into details of
our quarter, I want to spend a couple of moments reflecting on what happened in fiscal year 2018. It had been a truly exciting and rewarding year for us with some major achievements. First of all, our IPO in the first half of the year started a new era for our company and has been hugely successful in rewarding. Being a separate listed company gives us much more distinct profile and a much higher visibility. With the IPO, we also put a new, more agile organization into operation.
We de layered the organization, both vertically as well as horizontally and also implemented a more focused go to market approach. We also put our cost savings program into practice and achieved the first €60,000,000 savings in fiscal year 'eighteen. With the introduction of Healthcare performance of the Healthiness Performance Systems, we will drive the change to become an even leaner organization. Despite all the challenges, our organization didn't get distracted, and we brought many leading innovations to market. The launch of a Telica solution, which will put diagnostics on a different performance track and the introduction of 2 completely new ultrasound platforms as well as many new imaging products from a very strong innovation pipeline.
True to our motto, we say what we do, we do what we say, we also delivered on our financial promises. Organic revenue growth came in with 3.7%, well within our guidance range. Our adjusted profit margin with 17.2% was in the lower half of our guidance range but has been heavily impacted by FX of minus 120 basis points in this year. Going forward, we are well positioned to further accelerate our growth dynamics. In the past years, we have been growing on average by roughly under 3%.
Fiscal year 2018 has already been a step in the right direction. A lot of work has been done in the last year in renewing our product portfolio and optimizing our sales organization. Now we can fully benefit from our attractive end markets and will bring our company on a new performance level with regards to growth and profitability. In fiscal year 2019, we already will take a meaningful step towards achieving our mid term targets. Jochen will give you more details on our expectations for the next year in a couple of moments.
Before going through the Q4 highlights, I want to share some market share data for the U. S, which we just have received. In fiscal year 'eighteen, we have been again highly successful and have been winning significant market share in imaging and advanced therapy. On a 4 quarter rolling basis, we won 2 to 3 percentage points in both segments. Gains in our Molecular Imaging business have been especially strong, but also the other large imaging businesses performed strongly.
And as a highlight, every second MR scanner sold in the United States is a Siemens Healthineers machine. This again proves how competitive our offering is and that we are leading the market in imaging and advanced therapy. Now let's continue with our Q4 highlights. Revenue growth has been strong with 4.2 percent, especially if you consider that Q4 last year was our strongest quarter with 5% growth. That means we didn't have easy comms this quarter.
Again, our very strong imaging business has been the driver with roughly 6% growth. But also diagnostics performed well this quarter with 3% growth. We continue to receive excellent customer feedback on our Tenica solution, and this is also and this also shows our shipment and shows in our shipment numbers with 999 analyzers shipped this year. We are at the upper or let's say, upper end of our target range. Overall, instrument sales at diagnostics grew in the low teens in this quarter and for the full year.
That is an important leading indicator and points towards improving reagent sales and overall growth going forward. Adjusted margins have been again heavily impacted by FX headwinds of minus 2 10 basis points year over year. Operationally, that means ex FX, we had strong performance this quarter with adjusted margins being roughly 150 basis points above prior year ex FX. Adjusted net income was slightly down year over year on FX and higher taxes. Free cash flow has been strong, roughly 30% above prior year with a cash conversion rate of 1.05%.
Of course, we also want that our shareholders participate in our good performance this year. As promised, at the IPO, we will pay a dividend for the full fiscal year and not just for the time after the IPO. We will propose a dividend of €0.17 per share, which equals 55% of our reported net income. We focus on partnerships with our customers to jointly address their key challenges. Here, we made good progress this year.
We recently won several large deals like our retention deal with Primary Healthcare, which is the 2nd largest lab provider in Australia. We placed more than 70 Artellica solution analyzers in the lab automation setting with a contract duration of 7 years. With the Cathodic Medical Center in Empyong in Korea, we won a multimodality deal, the largest so far in Korea. The deal included not only a range of imaging systems, but as well the establishment of a center for artificial intelligence. In Germany, we won a managed equipment service contract with the clinic in Braunschweig, which is one of the largest hospitals in Northern Germany.
Single Virtual Cockpit connects more than 100 outpatient clinics and hospitals with 64 human cell senior scanners in a joint network at RDR in Brazil. BINGO virtual copy helps to shorten scan duration and to give more precise diagnostics to produce rapid results, but it overcomes expert bottlenecks at one location. With the Medical University of South Carolina, we were able to form a unique partnership for joint innovation and transformation of care delivery. I want to highlight 2 of several projects. We will drive to increase workflow efficiency and patient experience.
First project ends to improve the efficiency in stroke care by reducing the door to needle time from 90 to just 20 minutes. Reducing this time is critical for the patient's recovery. Getting the right diagnosis and treatment as fast as possible can make a huge difference for the patient. It's the difference between walking out of the hospital shortly afterwards or being dependent on nursing for the rest of life. The second project I want to highlight is the enhanced use of the digital twin technology, kind of artificial intelligence.
A digital twin is a digital replica of physical asset, process or system. In this case, the Digital Twin enables planning teams to quickly determine the impact of changes that would be costly, if not impossible, to test in the real world. It helps to stimulate how efficient workflow solutions or health innovations actually are in a new facility and thereby helps to both optimize patient experience as well as to maximize hospital efficiency. In fiscal year 2018, we continue to broaden our portfolio with many product launches, including a lot of industry first features. Some key highlights are our new MR scanners with our biometrics technology that automatically captures and corrects patients' physiology and motions coming from breathing, cardiac motion or head movements.
For our next ultrasound platforms, we receive excellent customer feedback. Customers really appreciate the brilliant image quantity and the very intuitive and efficient workflow. There are many more products on this page, but I want to emphasize that this is a typical pattern for our business. We typically introduce a new platform every 3 years in each of our imaging modalities. This also shows the innovation power that is embedded in our organization and which will drive our future performance.
Roughly 2 thirds of our revenue is generated with products which are not older than 3 years. Looking at our current overall portfolio, I dare to say that this is the strongest portfolio we have had in many years. And we will see more product launches at RSNA with several new imaging systems and a big focus on AI, artificial intelligence. AI and digitalization will be a major driver for the transformation of health care delivery in the future. We are perfectly positioned to profit from this development.
We have the largest paper pool with more than 500 patients in machine learning, including deep learning patients. Also, we have a large data lake of curated images, which is crucial to develop and train new AI, algorithms and applications. Only with sufficient high quality data, new AI algorithms can be developed and trained. With our supercomputer, we run around 40 AI experiments every day. As of today, we have 40 plus AI enriched offerings that is 10 more than in January when we hosted our Capital Market Day.
As an example, chest CT scans are one are an excellent example where AI could support radiology. The amount of imaging exams grows much faster than the number of radiologists. A typical radiologist has therefore less and less time to read an image and to make a diagnosis. Especially reading a CT check exam is highly complex since the radiologist has to examine many organs at a low reimbursement. AI trained software solutions could support the radiologists with an automated analysis of the entire chest CT scan to recognize and quantify abnormalities, for example, lesions in the lung, coronary calcifications or vertebra factors.
This would significantly increase the speed, precision and quality of a diagnosis together with our other product launches in imaging, artificial intelligence will play a major role at this year's RS and A. Now let's have a closer look on the progress of our Atelica solution. The product is very well received in the market, and we continue to win a high share of competitive contract. More than 35% of our analyzers placed in accounts where we have not been the incumbent provider. The 2 biggest deals this quarter have been a large automation deal with 40 analyzers with a new customer, La Baux Risson in France and primarily a large retention deal.
Also shipments this year have been a great success. With the famous 999 analyzers shipped this year, we reached the upper end of our target range. Next year, we expect further strong growth with additional shipments of 2,200 to 2,500 analyzers, which would bring the number of cumulative shipments to 3,200 to 3,500 by the end of the next fiscal year. Also, the expansion of our market reach is well on track. We received approval for Japan in Q4 and expect approval in China in the second half of fiscal year twenty nineteen.
We also made excellent focus on our assay menu. Since our Capital Market Day, we received approvals for several additional assays, both in the EU and in the U. S. We now have a very competitive menu with 2 0 2 approved assays in the EU and 100 approved assays in the U. S.
With the excellent track record of this year, we are confident to reach our fiscal '19 Atellica solution targets. With this, we are on track for our midterm shipment target of 7,000 analyzers shipped by end of 2020. For the rollout of our Telical solution, we have already been using methods of our Healthineers Performance System or in short HPS. HPS introduces lean methods across the business to empower our employees to identify and eliminate waste by focusing on customer value. It has been launched this year, and more than 500 employees have already been trained in HPS core method.
Built on the foundation of our 7 principles of Healthineers, HPS enables us to deliver on our strategy, drive execution and develop our employees. This will be a big focus going forward and will help us to become an even more efficient and lean company driving overall performance. And with that, I would like to hand over to Jochen for the financials.
Yes. Thank you, Bernd, and also a very warm welcome from my side. I believe this is the perfect handover to talk about our cost savings program. We are fully on track to achieve our targeted savings. In the second half of this year, we achieved the first savings of €60,000,000 mainly from the so called stand alone savings.
The new de layered organization implemented in fiscal year 2018 and further improvements like functional cost reduction, we will see further €140,000,000 cost benefit in 'nineteen. In total, we will realize €240,000,000 of cost savings. €50,000,000 of these realized savings will be reinvested in our strategic growth field in digitalization and artificial intelligence, also highlighted by Bernd beforehand. The biggest part of the implementation costs have been booked in fiscal 2018. For the next year, we expect additional charges in the neighborhood of $30,000,000 In total, we will see less charges as initially planned.
The initial planning on the implementation cost has been on the conservative side. In some instances, we also found alternative, less cost intensive implementation solutions. Let's now have a closer look at our financial performance in Q4. Starting with orders. We posted very strong 13% organic order growth in Q4, driven by very strong growth in service orders, but also equipment orders were strongly growing in the high single digits.
Now breaking the equipment orders down into segments. Imaging posted mid to high single digit equipment order growth. Advanced Therapies had an especially strong finish with equipment order growth in the low 20s. AutoSet Diagnostics grew at the same rate as revenue due to the book and bill nature of the business. Revenue in Q4 was strong with 4.2% growth against an already good Q4 in the prior year.
We saw growth in all regions with strong growth of 5% in the U. S. And solid growth in EMEA with 4%. Growth in China has been soft, but this is against some very tough comps in the prior year. At the same time, order growth in the quarter and full fiscal year has been strong in China, and we expect China to be a growth driver also in fiscal year 2019.
Our adjusted profit margin in Q4 was 18.2%. Year over year, this is a decline of 70 basis points. However, we faced heavy foreign exchange headwinds in Q4, as indicated, of 210 basis points. This headwind came mostly from an unfavorable hedging position versus prior year quarter. Last year, we have been still hedged at a very favorable rate, while this year, our U.
S. Dollar exposure has been hedged at around $120,000,000 Taking out the foreign exchange headwind, we see a strong operational improvement year over year of 140 basis points from earnings conversion and the first impact of the cost savings program. Adjusted net income came in lower due to higher tax expenses this quarter compared to last year. This could only be partially compensated by lower interest expenses post IPO. These interest expenses in Q3 and Q4 represent now the new normal post IPO and our good estimate for our interest expenses going forward adjusted obviously for foreign exchange fluctuations.
On a segment basis, imaging was driving growth in Q4 with a very healthy 6% organic growth. Ultrasound, computed tomography and x-ray products had a great finish to the fiscal year and achieved a significant revenue growth. Adjusted profit margin in Imaging decreased slightly year over year, primarily held back by strong foreign exchange headwinds of 220 basis points. Diagnostics sequentially improved growth quarter over quarter to 3% in Q4. Instrument growth continues to be in the low double digits.
And for the first time in several quarters, our reagent revenues has also been growing. On the adjusted profit development, in Q4 2017, we had a low double digit divestment gain from the sale of a smaller business to DYOSORIN. Excluding this effect, profit margin developed flattish year over year. Advanced therapies grew by 4% in Q4 with balanced growth both in equipment and in service. Growth has been especially strong in Asia Australia, driven by China.
Adjusted profit margins has been the most heavily impacted by foreign exchange with a headwind of around 3.50 basis points. If you exclude the foreign exchange headwind, Advanced Therapies showed strong operational improvement on earnings conversion and positive mix. Our cash conversion in Q4 has been very strong with the conversion above 1. Imaging and Diagnostics had a cash conversion rate of 1 and above on stringent cash management in the last quarter of our fiscal year. Advanced Therapies was below 1 due to a buildup of contract assets and receivables.
The change in other assets and liabilities stems from increased liabilities in conjunction with personnel expenses. We see this typically at the end of the fiscal year where we build up provisions for cash outs, for example, for incentive payout in the upcoming quarters. Our capital expenditure of €191,000,000 is primarily driven by factory build outs for diagnostics in China and in the U. S. Next year, we will see a further increase of CapEx spending driven by the build outs of our diagnostic factories.
This should ease after 2021 and decrease to a more normal level like we have had in the past. Now coming to our last slide, our targets for fiscal year 2019. Next year, we plan to grow revenue by 4% to 5%, which is already within the target range of our midterm framework. We expect that imaging and advanced therapies will continue to perform well. Diagnostics will be the main contributor to the additional growth.
There will be an improvement from this year's level of around 1%, but we still will be below our midterm growth targets. Diagnostic is an installed base business with 90% of revenues coming from reagents. Although we had strong instrument growth in the low teens this year, it will take some more time until our installed base and reagent revenue grow mid single digit. Nevertheless, our targeted Atelica solution shipments of 2,200 to 2,500 next year will support our growth and margin ambition. Also with regard to adjusted profit margin, we will see a significant improvement next year with a target range of 17.5% to 18.5%.
The midpoint of our guidance range represents the margin of 18% and 80 basis points improvement from this year's level. On segment level, we should see margin improvement at diagnostics and at imaging. Advanced therapies will continue in its high level of profitability. One short remark on foreign exchange. As we already have started hedging for next fiscal year, currently, we are hedged at 1.17 for the majority of the 1st 9 months next year.
Our fiscal year 2019 targets are based on current foreign exchange rates. One last remark on tariffs. We have several mitigation measures in place to reduce our exposure on tariffs. After mitigation, we see an impact of €30,000,000 to €40,000,000 on pretax profit for fiscal year 2019. On the net income and EPS level, this translates to a strong EPS growth of 20% to 30% next year.
Please be aware that the EPS guidance is on reported EPS. It is not adjusted. It's not adjusted for severance payments or other effects. And with this, I conclude my presentation and over to the operator for the Q and A session.
Thank you, gentlemen. We will start today's question and answer session where we would like to ask you to limit yourself to 2 questions. And our first question comes from the line of Michael Jungling from Morgan Stanley. Please go ahead.
Great. Thank you and good morning everyone. I have a question on Atelica and secondly on the adjusted profit margin guidance for the current fiscal year. On Atecla, if I look at the shipments, can you talk about the price stability that you're achieving with reagent sales? Are they as good as you expected at the beginning of last fiscal year?
And on Teleco as well, the utilization trends of reagents on the machines installed earlier this year. On the adjusted profit margin, the guidance of 17.5% to 18.5%, can you please clarify what would take you to the bottom end of the range and the high end of the range? And just clarify what impact FX at current rates would have on the group margin? Thank you.
Okay. So let me start by answering the Atenica question. We are satisfied with the pricing levels. So and that comes in as planned. I mean, certainly, this is a competitive market.
I mean, the product is very convincing since most of the positive impact comes from the tremendously positive business case that the product enables for the customer. And that's how they look at it, and that is also what gives us good pricing power. When it comes to throughput, I mean, this is early in the ballgame because it takes time until the analyzers are fully online and on an asymptotic behavior. But also there, we have no reasons to be concerned and are happy with the development. Regarding profitability questions, I hand over to Johan.
Yes. Michael, good question. First of all, as I mentioned in my brief update, we have hedged roughly the dollar exposure for the majority for the next 9 months at a level of $1.17, yes? And this gives us some very minor tailwind for next year, year over year, very minor, yes? Talking about low teens in base points, yes?
So no real significant impact expected from foreign exchange so far, but we never know, yes? What will bring us to the upper and lower end, I think this will then let's assume foreign exchange states according to assumptions, yes? This should be, I would say, relatively clearly a function of growth and mix. And growth, we gave you a range of 4% to 5%, gives you some indication on that. And mix, obviously, always plays a role.
But generally speaking, we feel confident with our guidance.
Great. And when you say mix, are you talking about the growth differential between your various divisions? Or what do you mean by mix? How could it impact, let's say, the business by 50 basis points or 100 basis points?
The mix comes in a lot of fashion, yes? Can be the mix between the different segments, can be a regional mix, can be a modality mix in imaging, yes? So mix comes in a lot of fashion. And I know certain I would say, we have a backlog. Therefore, we have a certain insight into the revenue development, but this is not as big as it is in a classical, I would say, large project business, yes?
Therefore, mix is still a certain level of uncertainty or opportunity, however you want to see this, yes? It comes in a lot of fashion.
Next question comes from Ian Douglas Pennant from UBS. Please go ahead.
It's Ian Lewis from UBS. Firstly, on the Chinese quota that we had out last week, could you comment on that and what you're hearing from central agencies on their enthusiasm for Healthcare capital equipment spending going forward? And so does that signal a new era of growth? And secondly, given the strong order growth we've seen over the course of this year and also very strong growth in Q4, why shouldn't we expect continued mid- to high single digit growth in Imaging and AT next year? Thanks.
Yes. I mean, on China, what we need to be clear on is that these are maximum quota which are issued, but that there is no investment commitment behind it, yes? So this is and I've read a few comments from colleagues of you already, which I find very precise. I mean, this is a slight positive, yes, because it shows that the potential is there, but it is not an investment plan. And it's in the end, it is priced in, so to say, in our guidance for the year.
And then the other question regarding growth on the in the Imaging segment. I mean, we are happy with how the fiscal year has turned out. And we aim for a similar momentum
in the next quarters. And I think as I pointed out also, we see China on the order side and then also on the revenue side, definitely a growth driver also for 2019, yes? This has been kind of backed up by the announcement given last week, how I would see this. With regard to imaging, I would say for the next quarter, we would expect decent growth in Ketanin.
Great. Very helpful. Thank you.
Next question comes from Roman Siena from Exane. Please go ahead.
Yes, thank you for taking my question. I have 2. The first one would be on diagnostics. Instruments are up double digit, as you said, which implies consumables are rather declining. When do you expect consumables utilization to pick up, I guess, from your new customers mainly?
And is that something we should already see in 2019 with a positive impact on margin? The second question is on the adjusted profit margin guidance and the cost saving actually. Looking at the cost saving program, it seems pretty new to me that this €50,000,000 of reinvestments in artificial intelligence and digital, at least on the communication, but you keep the same midterm profit margin target. So are these investments new? Or were they already planned?
And in that case, is there something that is balancing these extra investments? Thank you.
Yes. Romain, thanks for the question. I do start with the DX question. I think we saw decent instrument growth over the full fiscal year for diagnostic in the low double digit arena. And as I pointed out, in Q4, we saw growth also for the first time this the last fiscal year also on the reagent side, not a huge growth you should always have in mind.
Revenue is split 90% reagent, 10% instruments. And we expect to see and I think in the last calls, I always mentioned that the normal mix of reagent and instrument revenue is €90,000,000 to €10,000,000 And obviously, with the new franchise, Atellica, it is more the opposite. And we expect this to change rather quickly, yes, not directly to the neuro 90% to 10%, but definitely to a more balanced or slightly positive revenue portion from reagents already in fiscal year 2019 with corresponding positive impacts on margin.
And to the question about the reinvestment from the cost saving program. This is not new, yes? So this is baked in our midterm profitability targets. So there was always the assumption that a part of the savings we will have by moving to this more agile organization and also the stand alone savings that a portion of it will be reinvested into the future fields into much more value added aspects, yes, and especially in the in our efforts in digitalization and AI. But as you point out, it's important to know that we did not change our midterm targets despite the 3 index, yes?
Already includes the meeting impact on U. S. Tariff? Or will it be adjusted? Okay.
As they are today, yes, I mean, we currently see an impact of €30,000,000 to €40,000,000 after mitigation on our bottom line before tax. And this is part of the baked into the guidance, yes? Of course, if there is if there are completely new developments, we don't know, yes? But I mean, the current scenario, as known, is basic.
Thank you very much.
Okay.
And we can now take our next question from Patrick Wood from Bank of America. Please go ahead.
Perfect. Thank you for taking my questions. I have 2, please. Firstly, on Atellica. Again you're still running ahead in terms of the proportion of systems that are placed relative to plan with the competitors, I.
E. About I think it was 35% relative to I think your budget was for 2020. The economics of the system are obviously heavily leveled towards that given an incremental reagent stream when you replace a competitor system. So my question is, is there a risk if you still remain at this higher than expected or budgeted level of upside to the guidance range, not necessarily for 2019, but more for the longer term? I'm thinking in terms of margins more specifically.
And the second question I had is on the reported EPS growth range. It's quite a large window, the 10% split between the bottom and the top end of the range. I'm just curious as to what's driving such a large gap in that reported growth? Thank you.
Let me start with that, the easier one, yes, the second one. On the EPS side, I think the 10% delta between 20% growth and 30% growth equals almost 100 basis points on adjusted profit margin. It's slightly higher because they are but only slightly, if you do this if you do the math. And this is just to put some, I would say, some not rounded numbers into play. And we also know that we have a few other items below profit, which are interest expense, in particular, which are, let's say, exposed to foreign exchange variations on the translation side, yes, and therefore, difficult to hedge.
And then secondly, tax rate, which will be between 28% 30%, could also have an impact, which comes on top of the 17.5% to 18.5% adjusted profit margin.
Yes. I mean, on the Atellita question, I mean, we are very happy about this 35% of wins in there. We haven't been the incumbent before. These are especially wins in customer segments, which are about throughput which are about people who really optimize their setting for clinical excellence and productivity. And these but these are also the wins we need in order to grow our top line because just replacing existing units, they're not doing the trick alone, yes?
So from that point of view, it's a positive, yes? We are confident, yes, about placing the additional 2,200 to 2,500 units in this year and to reach the 7,000. But that's also what we need in order to start growing with and above markets in the midterm, yes.
Understood. Thank you for taking my questions.
Next question comes from Liisa Cai from Bernstein. Please go ahead.
Hi. Two questions. First, just on your ultrasound business. Could you provide a bit more commentary on the strength in ultrasound? I assume this is mainly coming in cardiovascular.
And just to clarify, does this show up in the imaging reporting? Are there any components that are within the Advanced Therapies business? And then second, as you continue to build out all these partnerships with big healthcare systems,
could you
comment on the data sharing components within those agreements? I assume you attempt to get access to patient records so that you can use that for data analytics, artificial intelligence as just access to data is going to become increasingly important in those arenas?
Yes. Thanks for the questions. I mean, first, ultrasound, the 2 platforms which we introduced, I mean, the one in the Juniper and then even more importantly, Sequoia, which is the new mid range, which is Juniper, the new mid range and the Sequoia, the new gold standard in the high end. They have a clear focus on what in ultrasound is called general imaging. So this is where their strength in the at the moment is going into the cardiovascular space is the next step.
I mean, they are but they are mainly general purpose machines, which is the biggest segment. Ultrasound, from a segment reporting point of view, is exclusively shown in imaging. I mean, yes, there is also a there's more and more a combination of interventional labs with real time ultrasound, but then the revenue is split and shown in the respective segments, yes? Then the other question regarding data access. I mean, this is a very important topic, and we handle this on a case by case basis.
There's no general theme about it. We have, as you as I mentioned, I mean, also when we talk about the 2 corporations, for example, in the Catholic Medical Center in Korea, we have an AI research program in place. We do the digital twin research and project in with MUSC. And there, we always have agreements in place so that both parties benefit from the data. We have a clear strategy overall, I mean, independent of individual customer partnerships to grow our so called data lake, which is comprises more than €300,000,000 imaging and other studies, which is vital for training our AI algorithms and is one of the core assets of the company.
Can now take our next question from Martin Mulkey from Citi. Please go ahead.
Yes, thank you. Good morning. It's Martin from Citi. Just a couple of questions on imaging. You talked about gaining share in the U.
S. And I was just wondering if you could let us know, normally, how persistent over time can share gains be once you have a certain technology? Is it something that you sort of hold for a few quarters or it can be longer in terms of if you have a better product than the competition? And it's just also in Europe, GE mentioned that they had some product launches there, suggesting that they would grow faster in Europe following that. So on the flip side, do you feel that some of that gain in the U.
S. Has been offset by any losses you may have seen in market share in Europe? Thank you.
I mean, answering the second part first, no, we have this has not been offset. And we see this, the continuous market share gains on a global level, yes? And now let me explain a little bit. I mean, this is not a cyclical thing, yes, where it's now about the one guy has a new product and then it takes a little bit of time and then somebody else is there. This is there is a long when you look at the last 10 years, yes, you can almost put a straight line into our market share gains, yes, because in the end, what you see there is a continuous stream of innovations, yes?
I mean, I mentioned in my talk here that every 3 years in every modality, in every segment in each modality, whether it's high end, mid range or low end, yes, we come up with a new product, yes? So having and this may sound now a little bit arrogant, yes, but having the best product is every year, yes, is and having the next new next level of innovation in each segment, in each product line is for us the normal course of business, yes? And the market share gains are more a especially when you look at them from a rolling 4 quarter basis and then you average around all imaging modalities, they are a clear indicator of overall innovation power, of having the best sales force, of reinvesting into innovation, of making your service network more efficient and so on and so on. It is not just the flavor of the day because there is one little product novelty. And maybe one other aspect which is important
or related to the market share gains is the growth of the installed base. And if you look at our growth revenue growth on service, we are very, very stable in the 5% comparable growth arena in this case. And this is only doable if you have this ability with your innovation pipeline.
Okay. Thank you.
Next question comes from Veronika Topachuca from Goldman Sachs. Please go ahead.
Good morning and thank you for taking my questions. I have 2 please. The first one is actually on the margin guidance for 2019 and I'm still struggling a little bit to reconcile the 17.5% to 18.5% with some of the benefits that you're going to get this year, whether that's the cost savings or the currency. And so maybe you can comment a little bit more on that, because if I do the math, even with the reinvestment, I mean, you should be seeing at the very minimum at least 80 basis points of margin improvement year on year. And so I'm surprised that the low end of the range is as low as 17.5.
So if I can follow-up on that. I know you've addressed that partially, but I'd like to get a little bit more detail. And my second question is looking at the cash flow statement, the cash tax was quite low this year. Is there something going on with your cash tax structure that we should be aware of? Or is this just a function of timing?
Thank you.
Yes. Thanks, Veronika. Jochen speaking on the I understand on the second, you asked about the cash out for taxes, yes? This in Q4, as you rightfully pointed out, very low cash out related to taxes due to the fact that we funded last quarter in the U. S.
Our pension scheme, yes? And so the tax benefit cash wise came in, in this Q4, yes? So this was an extraordinary item, so to say, right? On the adjusted profit margin guidance, yes, I think we said 17.5 percent to 18.5 percent midpoint is 18 percent means 80 basis points improvement year over year if we make the midpoint, yes? And the and as we had this discussion about that, we do not expect any major tailwind from foreign exchange, And when one of your colleagues asked beforehand talking about the bandwidth between 17 point 5 18.5, I said this will be a function of growth on the one hand and of mix on the other hand, yes?
And as you can see, in particular, in imaging but also in advanced therapies, mix can play a significant role, yes? And as our business, the reach of our order backlog is maximum 50% of revenue, yes? This 50% is still open for mix changes in all kinds of fashion, yes? And therefore, this is just to be cautious here. And therefore, we give 17.5 to 18.5.
But I do we also feel today not bad about using the midpoint.
That's very helpful. Thank you.
Welcome.
Next question comes from Scott Bardo from Berenberg. Please go ahead.
Yes. Thanks very much and congratulations on your 1st year trading post IPO. Question on imaging, please. Obviously, you're performing strongly within this segment at around 6% growth in the 4th quarter. So I wonder if you can dissect a little bit more, please, what you think is driving this strong growth?
Is the market more buoyant than you envisage at the Capital Markets Day? Is this seeming specific reasons? Or is there some evidence of some competitor disarray? So I wonder if you could just walk us through that a little bit more, please.
Yes. Okay. Thank you for the question. I mean now two ways to look at it. So I mean more on a general basis.
We have imaging is 40% of the imaging top line is service and 60% is equivalent. Our service business grows by 5% typically. And so that is always a solid growth contributor. Then on the equipment side, I mean, our assumption for the midterm is that the market on the equipment side grows by 3%. So when you add then you can add 1% to 3% or so to that as for outperforming the market for the continuous market share gains we talked about.
So that brings you into a 5% range, yes, when you do the math overall for the imaging segment. Now when we have currently, it might be, yes, that the market is growing a little bit more than the 3%, yes, which I would be careful to consider a new normal because these are investments, decisions. And once the investment decision is made, it shows there's no additional investment needed and so on and so on, yes? But to rationalize a little bit where this growth comes from, I hope that this math helps a bit here. So you see 5% service, you see the outperformance of the market, and then you probably also see 1 percentage point or so, currently, which comes from a little bit higher market growth than usual.
Okay. Very good. And perhaps just a financial question for Hocken, please. If one were to assume the midpoint of the margin guidance for 2019, as you highlight, around 80 basis points, Can you give us some feeling actually as to how you see that developing across the lines in the P and L? Is this more gross margin driven?
Or should this be operational leverage amongst your functional costs?
Generally speaking, I would say the majority should come out of the gross margin. You will see some benefit, I would expect, also from the SG and A line, not so much from the R and D line. That will be my best guess now.
Very good. Thanks so much, Jens.
Welcome.
Next question comes from David Adlington from JPMorgan. Please go ahead.
Good morning, guys. Thanks for
the question. Just a follow-up on Scott's point really, just on the imaging market. And I think you kind of intimated the market is probably growing a little bit quicker than it has done historically, maybe through last 4 or 5 quarters. Just wondered what you thought maybe what has driven that uptick in market growth? And how long do you think that, that high growth rate might be sustainable for?
And then secondly, just a near term question on the tariffs, €30,000,000 to €40,000,000 That's obviously the whole year number. Would we expect to see sort of greater headwinds in the first half? And then as you put through the offsets to see that coming through the tailwind of the second half? Just wondering about the phasing of that 30 to 40? Thanks.
Yes. I mean, on the imaging side, I think what currently is a positive is that globally every market is intact. So we don't see in a major geography, I say, yes, that there is that people are holding back investment positions, yes? And that is one of the reasons. Yes, I mean, we have a healthy market in the U.
S, I mean, not spectacular, but healthy market in the U. S, a healthy low single digit growth in Europe, healthy situation in the major emerging markets that helps. So it's not and this is what currently is from my perspective the reason why I'm convinced that is the reason why it's a little bit higher. It's not there's nothing like a global cycle. I mean that is sometimes a question we get here.
So there's not a global replacement cycle or something, yes? So this is more the sum of 100 or 160 different health care economies here, which currently are more on the health side. And that can also change, yes, and I mean, not dramatically. We we don't foresee any dramatic changes here. But I mean, currently, this is the main reason for it, yes.
It's not a technology or replacement wave. And reason it also not some kind of a global health care cycle, yes. The second question was about the tariffs, yes? I can take that if you
like that. On the tariff side, I would not expect to see significant fluctuations between the quarters, yes? I think there is maybe the risk, yes, in brackets that it might be a bit higher in the beginning until all the mitigation measures to really do its work, yes? But I would not expect significant fluctuation by quarter. Great.
Understood. Thank you very much.
We can now take our next question from Gunnar Romer from Deutsche Bank. Please go ahead.
Gunnar Romer, Deutsche Bank. Thanks for taking my questions. And the first one would be with regard to your comments on the divisional outlook. Just curious why you wouldn't expect some acceleration for your Advanced Therapies business in light of the very strong order intake you talked about in the Q4? And then also on the divisional outlook, what do you think are the main drivers of margin expansion that you are hinting to for your imaging business?
And then a housekeeping question, just on CapEx. I don't know whether I've missed it, but do you have any guidance for us regarding CapEx in the current year? Thanks.
Yes. Should I I start with CapEx, I would say. CapEx, I would expect to see it in a similar or slightly higher level than fiscal year 2018 2019. Generally speaking, as we are full in the build the phase of building out the wage manufacturing site in Wapol in China, yes? So I would say that would be in that ballpark, including operating this in the $800,000,000 arena, I would say.
On the margin side, in imaging, yes, we expect see imaging in the 4% to 6% arena, yes, obviously. And this helps from a conversion standpoint in that business. And also imaging will also benefit, obviously, from the cost saving program On advanced therapies, we do not expect significant tailwind or we expect them to be on a relatively high level. We had a very strong Q4 and profitability with more than 22%. So that lifted them up to almost 20% for the full fiscal year, 19.6%, if I'm right, on adjusted profit.
We are we will introduce a major platform at the end of the or within the fiscal year. What was the end might be that we see some more or some higher intensity on R and D to finalize that project and so on. So but generally speaking, we feel that with advanced therapies, we are well on our track to achieve long term targets on the 20% to 22%,
yes? But no
significant lift up this year. Yes.
And I mean there was the question around growth. I mean, yes, we are, of course, very happy about the order growth we have seen. I mean this typically also in this business takes a little bit of time until these systems are more to be done than a piece of imaging is installed typically because this is like equipping an interventional group. And you also when you look into our past material, we have had a very strong growth quarter in the Q1 of last fiscal year. So this strong order book also will is necessary to replicate the growth because of a period of tough comps, which is
ahead of us.
All right. Thanks.
Okay. Operator, let's take the last questions, please.
Last question comes from William Mackey from Kepler Cheuvreux. Please go ahead.
Hi, good morning. Thank you for taking the question. I'd just like to focus on the market growth again, if I may. Looking back over the quarters, there's been a reasonable amount of volatility in comparable growth across Europe or the Americas or Asia this year. I know you're more optimistic about the current level of demand across imaging and a number of other markets.
When with reference to your guidance for full year revenue growth, can you perhaps talk through how you see the U. S? I hear you'd be more optimistic about China and also Europe and specifically Germany developing in 2019. So what is in your assumptions with regard to market growth by geographic breakdown?
I mean, this is now more a question regarding imaging of mass I assume here because I mean the diagnostics market is relatively a more stable market because of the 90% of the agents' payment is of recurring nature. And I think the obvious question typically about market growth is the investment decisions which are done in imaging and advanced therapies. So I mean we believe looking forward that in the U. S. And Europe, it will be a low single digit market growth, yes, on the while in the emerging countries, it will be in the high single digits typically.
And the mix is about of our business is about twothree to onethree. Yes, these are not 2 emerging countries. And when you do the math, you end up at BV. Our assumption is and as specified in the capital market is 3% capital market base and 3% for imaging equipment and 4% on the Advanced Therapy side. Now potentially, this is currently you can add a percentage point or so, yes.
But no big dramatic change in the geographies, as I said in another question, are more or less intact, yes? So it's we don't see declining markets at the moment.
Is it a fair observation to say you have a very high comparative in the Q1 at least in China, but a much lower one in the U. S? So as the year develops, at least for the beginning of the year, we should see good growth within the U. S, but perhaps lower growth in China initially?
That could be the case, yes. And but I mean, as I said, I mean, there's also 2 ways to look at it here. I mean, when you look at I mean, there's the order side and there's the revenue side, I mean, we have been extremely happy with the finish of our in the United States in terms
of orders.
These orders take time will, on the other hand, take time until they get translated into revenue. And also when we speak about these larger partnerships, it also the revenue can be spread over or even over multiple years. But in general, it's true that last year, we had a stronger start in China and a not so strong start in the United States so that the comps are in as you said, yes.
Thank you very much.
Okay. So thank you, everybody, for participating today. As always, myself or the team will be available if you have any more questions. So thank you, and see you soon. Thank you.
Thank you. Bye.
That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. A recording of this conference call will be available on the Investor Relations section of the Siemens Healthineers website. The website address is ww dotcorporatesiemanshealthsenears.cominvestorrelations.